June means sorting out financials for many of us, especially those in business. I know it is playing on my mind, aiming to be organised for the end of financial year. So rather than have a designer rattle on about the ‘joys’ of accounts I thought we’d look at some of the realities of financials and having a small business.
Personally I think the two biggest financial considerations for a business are taxes and cashflow. But without planning for your cashflow your taxes can’t be paid.
So what is cashflow? It is simply the amount of cash coming in and going out of the business – through accounts and in cold hard cash.
When the cash runs out the business falls over. To be honest I learnt my lessons about cashflow by running out of cash and chasing my tail for a week. I hated it. For me it was one of the most horrible financial situations to be in and I work consistently to ensure this doesn’t happen again.
I ran out of cash simply because I didn’t open my eyes and see where my cash was needed and what was coming up. I over spent on beads – got carried away with it all and ended up with tunnel vision. I was able to get carried away because I hadn’t worked on a cashflow plan.
A Cashflow Plan is simply sitting down with a calendar and marking out what bills are due when, what amount and what is coming in, what is in the bank. From there you can figure out how much you have to spend on what.
When you are planning your cashflow you start to question where the money can best be used. There are must pay things – rent. mortgage, utilities, tax, income/wages, insurance, transport, etc.
Then there are business specific items – product components, service components, office resources, website, ISP connections etc etc.
I know I would love to spend a small fortune on new types of beads with no worries about the amount being spent or the consequences. But reality tells me I need to maintain successful design lines and keep getting the beads and components needed and slowly introduce and test the new types of beads and designs. It is a basic lesson in using my money – my cashflow – wisely so I can keep doing what I’m enjoying so much.
Cashflow Planning is part of doing a budget but whereas with a business you can get away by the skin of your teeth without a planned budget you will definiately loose your business if you foul up on the cashlow side of things. No two ways about it.
And looking after your cashflow isn’t hard. You do need to be realistic about money for it to work but that is one of the realities of having your own business.
There is no embarrassment in saying to a supplier, “I want to get this but I need to financially plan for it” (I can’t afford it right now). To the supplier it says you are likely to be a long term customer (aka a valuable customer) because you’re more likely to keep your business becasue you’re being sensible about money.
So in your self-education and research for your sea-change find out more about effectively managing your cashflow and how best to make your money work for you.
Personally now I find a lot of freedom by being aware of my cashflow – I know how I can grow my business with what I have. Now all I have to do is get on with it! 🙂